HOUSING PARTNERSHIP INVESTMENTS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP)

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1 (A CALIFORNIA LIMITED PARTNERSHIP) INDEPENDENT AUDITORS' REPORT AND FINANCIAL STATEMENTS

2 BALANCE SHEETS AND DECEMBER 31, 1999 ASSETS (Unaudited) (Audited) CASH AND CASH EQUIVALENTS $ 1,389,378 $ 1,464,601 INVESTMENT IN LIMITED PARTNERSHIPS 353, ,722 CASH DUE FROM ESCROW - - OTHER RECEIVABLES 78,810 78,810 DUE FROM AFFILIATE 1,816 - $ 1,823,726 $ 1,818,133 LIABILITIES AND PARTNERS' EQUITY LIABILITIES: Accounts payable $ - $ 11,879 Accrued Liquidation Fee 39,476 39,476 39,476 51,355 COMMITMENT AND CONTINGENCIES PARTNERS' EQUITY 1,784,250 1,766,778 $ 1,823,726 $ 1,818,133 A:\[00JUN75H.xls]D 11/13/00 10:43 AM 1

3 STATEMENTS OF INCOME SIX MONTHS ENDED AND 1999 (Unaudited) REVENUE Interest income $ 38,657 $ 39,256 OPERATING EXPENSES: Management fees 75,000 75,000 Legal and accounting 11,343 38,056 Other 13,842 18, , ,211 LOSS FROM OPERATIONS (61,528) (91,955) EQUITY IN INCOME OF LIMITED PARTNERSHIP 79,000 3,000 NET INCOME (LOSS) $ 17,472 $ (88,955) A:\[00JUN75H.xls]D 11/13/00 10:43 AM 2

4 STATEMENTS OF PARTNERS' EQUITY SIX MONTHS ENDED (Unaudited) General Limited Partners Partners Total PARTNER UNITS, June 30, PARTNERS' EQUITY Balance, January 1, 2000 $ 24,555 $ 1,742,223 $ 1,766,778 Net income for the six months ended June 30, ,297 17,472 PARTNERS' EQUITY Balance, June 30, 2000 $ 24,730 $ 1,759,520 $ 1,784,250 3 A:\[00JUN75H.xls]D 11/13/00 10:43 AM

5 STATEMENTS OF CASH FLOWS SIX MONTHS ENDED AND 1999 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 17,472 $ (88,955) Adjustments to reconcile net loss to net cash used in operating activities: Equity in income of limited partnerships (79,000) (3,000) (Increase) decrease in due from affiliate (1,816) 2,007 Decrease in other assets - 6,149 Decrease in accrued liquidation fee - (59,684) Decrease in accounts payable (11,879) (429) Net cash used in operating activities (75,223) (143,912) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the sale of partnership interests - 596,838 CASH FLOWS FROM INVESTING ACTIVITIES: Distribution from partners - (537,167) NET DECREASE IN CASH AND CASH EQUIVALENTS (75,223) (84,241) CASH AND CASH EQUIVALENTS, beginning of period 1,464,601 1,612,288 CASH AND CASH EQUIVALENTS, end of period $ 1,389,378 $ 1,528,047 4 A:\[00JUN75H.xls]D 11/13/00 10:43 AM

6 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Housing Partnership Investments Limited (the "Partnership") was formed under the California Limited Partnership Act on December 5, The Partnership was formed to invest in other limited partnerships which provide tax benefits through ownership of federal, state and local government assisted housing projects. The general partners are National Partnership Investments Corp. (the "Corporate General Partner" or "NAPICO") and Charles H. Boxenbaum. The Partnership issued 570 units of limited partner interests under a private placement. The general partners have a 1 percent interest in profits and losses of the Partnership and the limited partners have the remaining 99 percent interest in proportion to their respective investments. Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation ( CIC ), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P. (the Operating Partnership ), a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO. General The information contained in the following notes to the financial statements is condensed from that which would appear in the annual financial statements, accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and related notes thereto contained in the Annual Report for the year ended December 31, 1999 prepared by the Partnership. Accounting measurements at interim dates inherently involved greater reliance on estimates than at year end. The results of operations for the interim period presented are not necessarily indicative of the results for the entire year. In the opinion of the Partnership, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals), necessary to present fairly the financial position of the Partnership at June 30, 2000, and the results of operations and changes in cash flows for the six months then ended. 5 g:\users\files\fin\10k\hpil-k1.94 5

7 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Estimates and Assumptions In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include bank certificates of deposit and money market mutual funds. The Partnership deposits its cash in accounts with various financial institutions. At times, the account balances are in excess of federal depository insurance limits. The Partnership has not experienced any losses in connection with these funds. Method Of Accounting For Investment In Limited Partnerships The investment in limited partnerships is accounted for under the equity method. Investment in limited partnership balances are not recorded in excess of their net realizable value. Acquisition and selection fees and other costs related to the acquisition of the projects have been capitalized to the investment account. Net Income Per Limited Partner Unit Net income per limited partner unit was computed on the basis of the actual number of limited partner units outstanding at June 30, 2000, which was 570. NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS The Partnership has limited partnership interests in four limited partnerships, which own and operate multi-family residential rental projects and one limited partnership which holds a wraparound mortgage receivable for the sale of a multi-family residential rental project. The mortgage loans on these projects are insured by various governmental agencies. g:\users\2000\fin\10q\2ndqtr\hpilq /13/00 11:50 AM 6

8 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS (Continued) The Partnership, as a limited partner, is allocated between 75 percent and 99 percent of the profits and losses of the limited partnerships. Equity in losses of the limited partnerships are recognized in the financial statements until the limited partnership investment account is reduced to a zero balance. Losses incurred after the limited partnership investment account, including future commitments, is reduced to zero are not recognized. Additional losses will not be recognized until the limited partnerships generate profits. These profits, if any, will first be offset against the cumulative unrecognized losses and will be reflected in income only when the unrecognized losses have been fully absorbed. Cash distributions from limited partnerships are accounted for as a return of capital until the investment balance is reduced to zero. Subsequent distributions received are recognized as income. The following is a summary of the investment in limited partnerships and reconciliation to the limited partnership s accounts for the six months ended June 30, 2000: 2000 Investment balance, beginning of year $274,722 Equity in income and gains of limited partnerships 79,000 Investment balance, end of year $353,722 Under recently adopted law and policy, the United States Department of Housing and Urban Development ( HUD ) has determined not to renew the Housing Assistance Payment ( HAP ) Contracts on a long term basis under the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may be the case under existing HAP Contracts. The payments under the renewed HAP Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ( FHA ) unless such mortgage loans are restructured. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 ( MAHRAA ), which was adopted in October 1997, provides for the restructuring of mortgage NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS (Continued) g:\users\2000\fin\10q\2ndqtr\hpilq /13/00 11:50 AM 7

9 NOTES TO FINANCIAL STATEMENTS (CONTINUED) loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy. When the HAP Contracts are subject to renewal, there can be no assurance that the local limited partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA. In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain. NOTE 3 - FEES AND EXPENSES DUE TO GENERAL PARTNER An annual management fee of.25 percent of the Partnership's invested assets (reduced by the assets of interests disposed) is to be paid to NAPICO. The annual management fee may not exceed 50 percent of the Partnership's annual net cash flow, subject to the payment of an annual minimum amount which shall be 1 percent of gross offering proceeds. The annual management fee shall be paid subject only to the annual minimum amount and the 50 percent limitation referred to above. The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was $7,556 for the six months ended June 30, 2000, and is included in operating expenses. NOTE 4 - CONTINGENCIES NAPICO is a plaintiff in various lawsuits and also has been named as defendant in other lawsuits arising from transactions in the ordinary course of business. In the opinion of management and NAPICO, the claims are not expected to result in any material liability to the Partnership. g:\users\2000\fin\10q\2ndqtr\hpilq /13/00 11:50 AM 8